Bank of Ireland Plans to Re-Enter Public Debt Markets

By Art Patnaude

One of the six Irish banks bailed out by the Irish government around four years ago has announced plans to jump back into public debt markets, in a deal that could be seen as marking a cautious return to financial independence for the banking sector.

Bank of Ireland and its potential investors will have a phone chat Tuesday about the sale of covered bonds, perceived to be the safest type of debt banks sell. Covered bonds give investors an extra cushion of safety as they are backed by pools of mortgages or public-sector loans in addition to the bank itself.

The quality of the deals can be seen in their credit ratings. Moody’s Investors Service Inc. is expected to give Bank of Ireland’s new bonds an investment-grade rating of Baa3, one notch above its stance on Irish government debt. Canadian rating firm DBRS is expected to rate the bonds A (low).

It is crucial for the bonds to have a relatively high rating. As the sovereign crisis rumbles on in the weaker parts of the euro zone, only the highest quality debt has a chance with international investors. Take ESB Finance: The financing arm of Irish energy company Electricity Supply Board–a stable utility company–Monday showed bond investors remain eager to pick up hefty returns offered by companies from Ireland. The issuer attracted around €6 billion ($7.6 billion) worth of demand for its €500-million, seven-year bond.

But while these deals can be viewed as bright spots in the recovery, there is still a lot in Ireland that remains dark and uncertain. The reason is the same: the financial crisis.

The Irish government incurred huge costs when it saved the six lenders after the busted property bubble. In saving the banking system, the government was eventually forced to request aid of its own. In late 2010 the Irish government struck a €67.5 billion bailout deal with the European Union and International Monetary Fund.

The Irish government has been looking to get the euro zone to refinance a big chunk of the around €64 billion it sunk into the banks. How, and when, such a deal might surface, remains up in the air.

Meanwhile, the economy is in a slump, unemployment remains high and consumer confidence is low.

Yet for now, the going is good. Ireland’s 10-year bond yield is even lower than Italy’s, at 4.7% compared with 5%, according to Tradeweb data. Investors scrounging for higher returns amid the low interest rate environment are more than willing. Bank of Ireland represents a step on the path to recovery. But should anything spook investors again, the window for new bond deals from Irish banks may quickly shut.